Chinese Trade Tariffs Likely to Stay

It appears the Chinese tariffs will remain at 45 percent ad valorem for raw pistachios and 15 percent ad valorem for roasted pistachios until January 2019. President Trump is likely to further increase the U.S. import tariffs on Chinese products on January 1st; China may, in turn, impose increased tariffs. In 2017, the U.S. exported 96,576 MT of pistachios to Hong Kong and China. China claims the Section 232 (national security) and Section 301 (IPR) measures should be resolved in the WTO; both parties are filing the necessary papers in the WTO. A panel of former USTR ambassadors discussing trade issues suggested the U.S. should have brought an action against China claiming it did not comply with its obligations when it was admitted into the WTO as a full member.

U.S. Pistachio* Exports to China and Hong Kong

Year

2016

2017

2018

January

539

1,906

1,438

February

425

4,896

1,874

March

239

4,813

5,183

April

137

3,510

3,961

May

832

3,102

3,196

June

1,754

2,906

2,697

July

4,798

5,429

2,984

August

2,998

7,534

4,564

September

10,650

10,697

–

October

22,769

16,211

–

November

24,975

19,917

–

December

3,995

15,656

–

Total

74,111

96,577

25,897

*Includes in-shell, shelled, and roasted, in metric tons

While the U.S. is negotiating trade deals with other international partners, the trade war with China shows no sign of ending. The tariffs have been a means of incentivizing China to change regulations. The administration is primarily concerned about the Chinese subsidization of firms and the pressure on U.S. companies to give up their technologies. The WTO representative has indicated that these requests are unlikely to be met citing their “socialist market economy.” The Trump administration has imposed tariffs on about half of the $505 billion that the nation imported from China in 2017. The retaliatory tariffs China has imposed include most agricultural products. If the expected talks between Presidents Donald Trump and Xi Jinping at

November’s G20 summit do not go well, more tariffs will likely be imposed on China. The loss of investment in China may be the biggest consequences of a long-term trade war. There is, however, disagreement on how heavily the trade war will impact the U.S. economy.

United States-Mexico-Canada Agreement (USMCA)

The Trump administration’s NAFTA renegotiation has resulted in a new free trade deal with Canada and Mexico. This trade deal was announced on September 30th and termed the United States-Mexico-Canada Agreement (USMCA). A preliminary review of provisions impacting the U.S. pistachio industry and other specialty crop industries does not indicate any change from the existing NAFTA agreement. Pistachios will continue to receive zero tariff treatment by Canada and Mexico. In 2017, the U.S. exported to Canada and Mexico 7,899 MT and 3,201 MT of pistachios, respectively.

Mexican and U.S. opposition blocked negotiations of a “perishable and seasonality” provision that would have allowed U.S. produce to sue Mexico growers/exporters for dumping fruits and vegetables. The current law only awards anti-dumping lawsuits if injury can be proven by the entire U.S. crop. With a perishable and seasonality provision, an exception for perishable and seasonal crops would have made room for regional lawsuits. In an effort to still secure protections for U.S. specialty crops, members of the Florida congressional delegation have introduced perishable and seasonal legislation. The Agriculture Trade Improvement Act of 2018, introduced by Florida Reps. Carlos Curbelo (R) and Al Lawson (D), compliments similar legislation from Florida Sens. Bill Nelson (D) and Marco Rubio (R) on the other side of Capitol Hill.

The majority of the trade agreement changes dealt with automobiles, labor laws, environmental standards, and dairy. While the three leaders are hoping to sign the agreement by the end of November before the current Mexican leader leaves office, all three countries have to ratify the agreement before it is enacted. Andrés Manuel López Obrador, the newly elected Mexican leader, indicates that he will not renegotiate the USMCA, throwing his support behind it. In Canada, the debate around the changes may make it hard for Prime Minister Justin Trudeau to sign the agreement without a fight. The

U.S. midterm elections may also prevent this deal from being signed in. With the predicted blue wave, the change in leadership within the House may prove to be an obstacle in getting the agreement signed soon. While months-long debates on the new provisions will likely take place, a statement by Senate Minority Leader Chuck Schumer (D-NY) indicates that Democrats are satisfied with some of the changes. The labor provisions are particularly favorable to Democrats who have long shown discontent with that element of NAFTA. Nevertheless, they are unlikely to want to give President Trump an easy win. Consequently, the agreement will likely not be signed until 2019.

A controversial provision in the agreement – non-market economy – makes it difficult for any of the three USMCA countries to enter into an agreement with China. Since North America is an important market for China, the U.S. will have veto influence should Mexico or Canada wants to sign a separate trade agreement with China.

The U.S. International Trade Commission (USITC) is requested by the USTR to prepare a report assessing the likely impact of the USMCA on the U.S. economy as a whole, on selected industry sectors, and on U.S. consumer interests. The USITC will host a public hearing for this subject on November 15th that will be continuing on November 16th if necessary. October 29th is the deadline for filing requests to appear at the public hearing.

Chinese Imports Likely to Decrease

According to the Foreign Agricultural Services (FAS) 2018 China Tree Nut Annual GAIN Report, the current trade war between the U.S. and China is forcing China to seek alternative markets for its pistachio imports. The country has seen a vibrant consumption of tree nuts as a result of health campaigns emphasizing the health benefits of nuts. According to China and Hong Kong reports, in 2017, U.S. pistachios made up 82 percent of their combined pistachio imports. The 45% tariff on U.S. raw pistachios that was implemented on July 6th is set to decrease imports from the U.S. This market share currently occupied by the U.S. will be difficult to fill by other competitors due to limited substitutable suppliers. This will lead the country to increase its marketing for consumption of alternative nuts, such as cashews and Brazilian nuts.

China Cracking Down on Transshipments of U.S. Almonds and Probably all Agriculture Products

Now that U.S. almonds are subject to a 50 percent ad valorem tariff when entering China, some Chinese businesses are trying to buy more nuts grown domestically or from other countries as reported by the Wall Street Journal. To make matters worse for U.S. farmers, China has quietly closed a trading loophole that for years allowed large volumes of American almonds to be transported into the country via Vietnam without incurring import taxes. China is also cracking down on commodities illegally smuggled into the country or brought in through transshipments. These actions are all an effort to make tariffs on U.S. agricultural products as effective as possible.

More Trade Deals to Come

After completing the USMCA negotiation, the Trump administrations is preparing to announce plans for a series of new free trade deals. On October 10th, members of the Senate Finance Committee came out of a private meeting with U.S. Trade Representative Bob Lighthizer expecting formal announcements to soon be made indicating that talks will begin with Japan, Britain, the EU and the Philippines. Afterward, negotiations will begin with as many as three African countries. Senator Rob Portman (R-OH), a former

U.S. Trade Representative, said Ivory Coast, Ghana, and Kenya are the top candidates for these trade agreements. These candidate countries are not met without opposition as the Finance committee’s top Democrat, Senator Ron Wyden (D-OR), expressed that he and other Democrats have serious reservations about entering an agreement with the Philippine’s President Rodrigo Duterte, who has been accused of human rights abuse.

U.S.-Japan Trade Agreement

U.S. trade negotiators are working towards a U.S. – Japan Economic Partnership Agreement (EPA). It appears there was a renewed interest after the EU successfully negotiated the EPA with Japan. The U.S. indicated it would use the framework of the failed Trans-Pacific Partnership negotiations for the negotiations with Japan. The current Japanese pistachio tariffs are zero for raw pistachios and 5 percent ad valorem for roasted pistachios. In 2017, the U.S. exported 1,687 MT of pistachios to Japan.

Brexit

The effort to complete the withdrawal of the United Kingdom from the European Union has become complicated as the UK parliament conservatives are not supporting the Prime Minister’s proposal. One problem the conservatives have with Prime Minister Patricia May is her proposal to adopt EU regulations; such an agreement would hinder the U.S. pistachio industry’s attempt to resolve the EU’s aflatoxin program. Parliament will have to pass the withdrawal agreement before March 29, 2019. After this date, the UK will be able to start negotiations with the U.S. for a free trade agreement.

The current EU pistachio tariffs are 1.6 percent ad valorem for raw pistachios and 9.0 percent or 10.2 percent ad valorem if the roasted pistachios are in the packaging of a net content not exceeding 1 kg. Since the UK does not produce pistachios, should there be an FTA with the U.S., the pistachio tariffs should be zero. In 2017, the U.S. exported 2,760 MT of pistachios directly to the U.K.

U.S. – European Union Trade Talks

The Trump Administration trade negotiators are claiming progress on U.S.-EU trade talks, but since agriculture is not part of the negotiations, we expect no progress pertaining to agriculture.

The EU is a net importer of pistachios, importing the vast majority of the product from the U.S. and Iran. Currently, Italy is Europe’s main producer and is increasing its production in the region. In response to an increase in domestic consumer interest in the product Spain is also entering the market in Europe. However, the U.S. remains the main exporter of pistachios to the EU.

Farm Bill

As you know, Congress did not pass a Farm Bill before September 30, 2018. This date is significant in that this is the end of the U.S. government’s 2018 fiscal year. In the previous Farm Bill, the authors only provided authorization for many programs through FY18. Some programs received authorization past this date but those that did not require some explanation.

In the last Farm Bill in 2014, some programs were authorized below a threshold determined by the Congressional Budget Office (CBO) of less than a minimum of $50 million in mandatory spending levels; this $50 million is called the “baseline”. Because of this threshold, funding these programs within the boundaries of the Congressional Budget Office ’s baseline becomes challenging, if a new Farm Bill is not passed. Therefore, because a new Farm Bill was not passed, these programs cannot perform their functions and will not receive funds until Congress agrees to new legislation.

Some programs were funded in 2014 above the baseline but not authorized past September 30, 2018. Until Congress passes an extension of the 2014 Farm Bill or new legislation, these programs will not receive funds and cannot perform their functions. There have been differing views and reports on what Congress will do and when. Pieces of the discussion hinge on the mid-term elections and if the Republicans will keep the majority in the House and the Senate.

See below for an explanation of important Specialty Crop trade provisions and their standing in this time period between Farm Bills:

Market Access Program: not authorized past September 30, 2018. If a Farm Bill extension passed as an interim measure, the program will be reauthorized and funded, or if a new Farm Bill is passed. FY2018 funds – $200 million

Value Added Market Development Grants: not authorized past September 30, 2018 and funding below Congressional baseline; needs new Farm Bill to continue. 2014 Farm Bill authorized at $63 million for FY2014, until expended.

Specialty Crop Research Initiative: Maintains authorization and funding past September 30, 2018; FY18 and each fiscal year after funds – $80 million

Specialty Crop Block Grant: Maintains authorization and funding past September 30, 2018; FY18 and each fiscal year after funds – $85 million

Food Safety Modernization Act – FDA Export Certificates

On August 31st the FDA announced that on October 1st, they will begin to issue export certificates for food and collect certification fees. Previously, the FDA provided these certificates for other FDA regulated products, and FSMA gave FDA the authority to issue optional certificates and collect fees for food export certifications (up to $175 per certificate but the website, Figure 20, mentions $10). These new export certificates areoptional and not required for export; the FDA anticipates, however, that the new certificates will help facilitate exports by assisting industry in fulfilling importing country requirements for certification by FDA of FDA-regulated food products.

In conversations with FDA, it was made clear that to apply for an export certificate the following are required:

Must have a recent, valid inspection by a local, state or federal entity that indicates compliance with applicable FSMA requirements;

Must be a U.S. food facility;

Must be registered as a facility.

Turkey’s Pistachio Outlook

Turkey is expected to have a strong year in pistachio production according to the 2018 Turkey Tree Nut Annual GAIN Report. Predictions indicate that pistachio production will reach a record of 210,000 MT in MY 2018/2019, up from 80,000 MT in MY 2017/2018. While this is a significant increase in production, due to low rainfall and insufficient male trees it is 10% less than in ideal conditions Most of the production will be consumed domestically with minimal exported to Saudi Arabia, Israel, Jordan, Azerbaijan, Italy, Germany, and France. Along with increased production, Turkey will see a 55% increase in consumption from last year. Any U.S. pistachio exports to Turkey are usually met with a 43.2% tariff rate; as of August 15, 2018, however, the tariff is now set at 63.2%, further discouraging exports from the U.S.